Most homeowners don’t think about their electrical system until something stops working. A light flickers. A breaker trips. An outlet quits. None of these seem serious enough to warrant concern (or more than a patch job), but insurance companies think about home electrical systems differently, and rightfully so.
Home electrical issues are one of the leading causes of house fires. They also prove expensive to repair relative to damages. Therefore, insurance companies have a vested interest in the state of home wiring, panels and overall electrical systems. Some issues can even prevent a potential policy from being created, while others will increase premiums or necessitate immediate repairs before a policy is even issued.
Wiring
Some houses have electrical systems that, several decades later, are still working just fine but do not fall in line with modern code standards. For example, homes built between the 1960s and 1970s often have aluminum wiring.
Aluminum wires are a huge red flag for insurance companies because it’s wiring that expands and contracts more frequently with heat and more than copper will. Over time, loosening connections, created from vibration, cause heating and subsequently, fire risk. Many insurance companies will not insure homes with aluminum wiring unless it’s been remediated by a licensed electrician or replaced altogether. Others will cover them but with higher premiums or stipulations related to inspections/updates necessary from there on in.
Knob and tube wiring came before aluminum; it was introduced around 1950 and used until it was banned in 1970. This outdated wiring also lacks the necessary grounding precautions in modern code. The fabric insulation also degrades over time.
Insurance adjusters will see these types of wiring during an inspection; they are trained to recognize them and flag them accordingly. Homeowners, however, will only find these out as problems when they seek new policies or renew their existing ones.
Panels
Electrical panels (often called breaker boxes or fuse boxes) divide power throughout the home. Older homes have power panels that suffice for safety; however, they were constructed ages ago when a family needed much less electricity compared to today’s needs.
For example, a 60-amp or 100-amp service may have sufficed when a refrigerator, some lights, and a television were all the electric needs a family had to power. Air conditioning units alone have created a need for more power; multiple computers, kitchen appliances, and electric cars mean that those original panels are strained.
Panels strain have many dangers; they catch fire, they don’t trip breakers when they’re supposed to, they let through too much power to circuits which can catch wiring on fire. Insurance companies care about the panel’s capacity because if panels cannot supply adequate service, the entire property is at risk. Underwriting finds that the insurer must include panel information, amp rating or needed service, and homes that need coverage often benefit from residential power supply upgrades to meet modern electrical demands and insurance requirements.
For example, Federal Pacific panels (and Zinsco panels) were manufactured decades ago and have a bad reputation for decades with documented issues related to breakers not tripping in situations where they should at overloads or shorts. Many insurance companies will not cover homes with these panels at all. Others require replacement immediately if coverage is desired.
Amateur Work
Home improvement projects are trending for DIY enthusiasts, but many insurance companies will take note if the DIY project involves unlicensed labor for any electrical work; this could mean a claim denial.
Insurance companies rely upon claims investigation and if they find that improper work contributed to a fire, electrical or otherwise, they can deny a claim with no recourse.
This includes unlicensed modifications, unpermitted work, visible code violations, open junction boxes, exposed wires, improper grounding or non-existent grounding, overloaded circuits, and incorrect gauge of wires, all common problems noted during inspections after homeowners inherit poor decisions from previous homeowners trying to save cash by doing their own electric.
When insurance companies note electrical work done by amateur hands, they often require an electrician to scour the house and either deem it safe and compliant, or if there are violations found, they’re required corrections before coverage can be issued. This gets expensive fast, especially if it’s a whole house initiative instead of spot checks.
Inspections
Not every home has proper safety devices either. Homes built decades ago fell short of what an ideal system includes today, ground fault circuit interrupters (GFCIs) prevent shocks in wet conditions by cutting off power when they detect anything askew, and arc fault circuit interrupters (AFCIs) detect faults that will spark fires and cut off power before damage occurs.
Insurance companies often expect these features in homes as well, if they’re required in any capacity by code today (kitchen/bath GFCI protection; bedrooms/living areas AFCI protection), then homes without them may see increased premiums or stipulations to upgrade.
Whole-house surge protection also becomes important; lightning strikes or surges can ruin technology and while coverage won’t cover these devices, sometimes having them can lower premiums as it shows diligence for electrical safety.
When Is This All Considered?
Whenever someone applies for homeowners insurance or renews their existing one, sometimes the insurance company will order an inspection for the underwriter. The inspector will take pictures of the breaker box panel and look around for visible issues from there on in, noting age and proper function along with any overt safety concerns.
They’re looking for specific red flags: box brands that are noted for being outdated; wiring systems that are noted for being outdated; signs of overloading; amateur repairs; missing safety devices. Any of these can signal adjustments needing to be made for coverage to be issued.
Sometimes an insurance company can issue coverage but requires electrical updates within a timeframe (generally 30-90 days); if work is not started by then, and verified through a professional, coverage can be rescinded.
Some insurance companies do drive-by inspections where they only take outside photos but many will require access into the home to ensure safety from within, refusing access means coverage will be almost impossible to obtain.
Costs
Electrical work adds up relatively quickly which is poor news for homeowners. An electric panel can replace anywhere from several thousand dollars. Rewiring an old home can cost up to tens of thousands of dollars just for one room, let alone assessing a whole house after decades of wear and tear, but when it comes time to put coverage into place, it’s without the option of limited fees down the line.
Getting surprised by needing to replace a $4,000-pounding electric panel before coverage even kicks in strains budgets already stretched thin by home buying effort so while buyers should anticipate fees like this, they rarely know what’s needed unless they’ve settled down first or time for renewal is upon them.
Some buyers appreciate electrical inspections that reveal what’s needed so they can determine costs prior to purchasing a house. These renovations should happen beforehand, buying the seller down on selling price (to afford interior replacements) or requiring documentation that certain things are done ahead of time.
The Bottom Line
Insurance companies aren’t doing this vindictively, they’re assessing risk based on years of generated data spanning decades showing certain electrical components create fires and damage spread.
They’re assessing what’s best financially for their bottom line, and where policy language comes into play, and what’s safest in generating new policies for new customers.
However, this means that homeowners must stay proactive about their electrical system as well as updates; waiting for something bad to happen, or for an insurer to tell them what’s wrong, in reality leaves less time for people to remediate findings at their leisure so they can avoid paying overages out of pocket.
Older homes are charming yet they come with old systems needing attention. Electrical systems are one component which should never be compromised over time as insurance companies issuing coverage have strong perspectives about what works and what’s unacceptable, and homeowners need to know these expectations ahead of time before they become urgencies.
